Broker-dealers are still feeling their way on how to comply with at least one aspect of the new Finra suitability requirements: how to track brokers' recommendations to hold on to a specific security.
Firms are confounded by this part of the rule because their systems track only “sell” and “buy” orders.
“With the hold, it's an absence of a transaction. There are no checks and no applications being submitted, so how do you document it?” asked Mark Quinn, chief risk officer at First Allied Securities Inc.
“Finra believes it is important that a broker's explicit recommendation to hold a security be suitable for the customer,” said Finra spokeswoman Michelle Ong. “With that said, Finra appreciates that firms have been working hard to develop approaches to supervising such recommendations.”
Firms are implementing different ways to document situations of this type. Some, for example, are using “hold” tickets to reflect the rep's recommendation, while others are simply asking reps to document when a client is told to hold on to a security.
First Allied uses a “hold blotter” to record particular transaction details, as well as additional documentation for certain risky assets.
Investments such as options and structured products warrant that extra layer of detail, Mr. Quinn said.
John Hancock Financial Network has added a hold check-off on tickets in the event that a broker thinks that he or she made a recommendation, according to Thomas Horack, chief compliance officer.
dmercado@investmentnews.com Twitter: @darla_mercado
